Slight dip seen nationally; more hiring, construction halt credited

San Diego County’s office vacancy rate dropped to a four-year low of 13.4 percent in the second quarter of 2012, CoStar Group reports.

Nationally, the vacancy rate dropped from 12.8 to 12.6 percent from the first quarter.

Brokers nationally and locally attributed the improvement to a gradual increase in jobs and office demand and a virtual halt to widespread office construction, which has crimped supply.

Elsewhere, New York City led the big-city vacancy improvement, with only 7.1 percent vacancy. Washington, D.C., tied with San Diego, while Chicago and Los Angeles were higher and Philadelphia was lower.

In California, Orange County’s rate was a bit higher at 13.5 percent and San Francisco’s was lower at 11 percent.

San Diego’s rate was down from 13.7 percent in the first quarter and was the lowest since the third quarter of 2008. That downward trend started two years ago when the vacancy rate hit 15.2 percent, the highest in at least 20 years.

The lowest rate in recent times was 5.6 percent in the second quarter of 2000. Such a low rate set off a wave of construction that ran the county’s office inventory up from 88.8 million square feet then to today’s 111.9 million square feet.

The Cassidy Turley brokerage said San Diego’s office market has benefited from some additional hiring and that has led to a tightening in submarkets such as Del Mar Heights, Sorrento Mesa, Kearny Mesa and Mission Valley.

Jason Hughes, a principal at the Hughes Marino brokerage, predicted the present “positive swing” will continue for the rest of the year.

“Many of our active client transactions will result in expansions and relatively few companies are planning to take less space when their leases expire this year or next,” he said.

But downtown San Diego, the region’s central business district, did not participate in the vacancy decline. It remained unchanged at 16.8 percent and saw only 5,788 square feet in increased rented space.

“Overall demand in the (central business district) still continues to be weak, and some tenants have relocated and will continue to relocate, to the suburban submarkets of Central County primarily,” Colliers International said in its review of the data. “This trend will likely equate to continued vacancies throughout the last half of the year.”

Chris Reutz, Colliers’ local research director, said annual office rents, currently at $25.52 per square foot, are likely to remain unchanged, with some increases in the best “Class A” buildings where large blocks of space are disappearing.

“In a nutshell, you can expect a Class A acceleration,” he said. “If rents start picking up for anybody who’s been holding out to expand, different economics come into play whether they can or cannot (remain).”

That’s already apparently the case in the University Towne Centre submarket, where more than 200,000 square feet was rented in the second quarter and the rental rate was the highest at $29.73 among the top five areas.

While vacancy rates are falling and rental rates are stable and may head upward, the prospects of a widespread construction boom of high-rise office buildings remains elusive as the economy struggles to recover and demand remains weak.